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Fenergo CLM for SalesforceⓇ puts Relationship Managers in the driving seat of the client onboarding journey, providing them with insight into and oversight over the entire end-to-end client onboarding process.

EMIR (the European Market Infrastructure Regulation) is a regulatory framework which advocates for all standardized OTC derivatives contracts to be cleared through a central counterparty (CCP) and reported to a trade repository (TR).

The EMIR regulatory clearing and reporting requirements apply to:

Any EU entity that enters into a derivatives contract

Any non-EU entity that enters into a derivatives contract with an EU counterparty

Any non-EU entities that enter into an OTC contract that has a ‘direct, substantial and foreseeable’ impact within the EU.

Non-financial counterparties with aggregate OTC derivatives positions below the clearing threshold but who are subject to some reporting obligations and certain risk mitigation requirements.

EMIR’s Clearing Obligations and Thresholds

EMIR’s clearing obligation applies to all OTC derivatives contracts that reach a certain threshold, taking into account a rolling average position over 30 working days (excluding hedging transactions). It does not apply when the gross notional value of an entity’s position remains below the applicable threshold for 30 working days.

€3 billion in gross notional value for commodity derivatives and other OTC derivatives not listed above.

By 15th March 2013, all FCs and NFCs must notify ESMA:

If they have exceeded the clearing threshold

To confirm any uncleared OTC contracts

To start implementing EMIR’s risk mitigation techniques.

If a FC or NFC whose aggregate OTC derivatives positions exceed the clearing threshold enters into a contract which is subject to mandated clearing, it must be cleared through a CCP (Central Counterparty Clearing) that is either EU-authorised or EU-recognised (if established in a third country).

EMIR’s Reporting Obligation

By 16th August 2012, all derivative contracts entered into by both FCs and NFCs must be reported to an EU-authorised or EU-recognised (if established outside of the EU) trade repository. This includes both OTC and exchange-traded contracts. It is expected that reporting obligations for credit and interest rate derivatives will take effect from 1st July 2013 at the earliest. Reporting obligations for derivative contracts in all other asset classes is anticipated to take effect from 1st January 2014 at the earliest.

Daily valuation and mark to market or mark to model (dates still to be announced).

Timely, accurate and appropriate segregated exchange of collateral (dates still to be announced).

EMIR Client & Counterparty Classification Requirements

Just like other new regulations (such as FATCA, Dodd-Frank, MiFID II), financial institutions need to classify all clients and counterparties to a contract to comply with EMIR’s clearing obligations. Client and counterparty classifications will determine if they are:

a Financial Counterparty (FC)

a Non-Financial Counterparty (NFC)

a Non-Financial Counterparty that is over the clearing threshold (NFC+).

The first two classification types should not prove problematic in terms of identifying and classifying the client and/or counterparty correctly. However, the same can’t be said for the last classification – NFC+.

The problem here is that, while EMIR dictates a requirement for NFCs to notify competent authorities and ESMA when they, or any others in their group, have exceeded the threshold, there is absolutely no obligation to inform the marketplace of this status update. There is no obligation placed upon NFCs to ensure all trading partners classify it appropriately. Likewise, EMSA is under no obligation to share its NFC+ register. Furthermore, NFCs normally lack sophisticated internal monitoring systems, making it difficult for them to even know when they have exceeded the clearing thresholds for their organisation or any entity within their group.

Failure to correctly classify counterparties or clients may adversely impact ability to do business.

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We chose Fenergo’s solutions because they will enable us to meet the increasing complex regulatory frameworks with an efficient and client-centric onboarding experience.